Li & Fung Ltd.'s net profit rose 27% to HK$4.28 billion (US$549 mm) in 2010, helped by its rapid expansion in the U.S. and Europe. But the apparel sourcing and logistics giant warned that a “new era in sourcing with higher prices” has begun due to rising raw materials and Chinese labor costs.


According to the Financial Times, Bruce Rockowitz, president of Li & Fung Trading, said on a conference call, “The biggest topic on the minds of everyone in this business is that higher prices are really here to stay. At this point, retailers are not sure what they can pass on to consumers and what they cannot.”


William Fung, the company’s group managing director, noted that wages have increased about 20% this year due to heightened competition for labor in China.


Management said China is now responsible for only 25% of Li & Fung’s apparel sourcing with production headed to Bangladesh and Vietnam. In spite of this shift, China’s overall share of the company’s total sourcing rose from 54% in 2009 to 57% in 2010 because of a series of acquisitions last year.


Those deals included Visage, a U.K.-based private-label supplier; Jimlar Corp, a U.S.-based footwear maker; and Integrated Distribution Services, a logistics provider.


The company's core operating profit rose 42% in 2010 to HK$5.66 billion (US$727 mm), falling short of the US$1 billion target set under its three-year plan for 2008-2010.


Li & Fung also set a three-year plan for 2011-2013 with a goal of core operating profit rising to US$1.5 billion in 2013.


Rockowitz said in a statement, “This new Three-Year Plan marks the beginning of a new era at Li & Fung, one in which higher prices have brought the industry status quo to an end. We have grown from one global network to three – trading, logistics and onshore – but the whole is much greater than the sum of its parts. While the Three-Year Plan targets are once again ambitious, we are confident about us achieving them because the Group now covers the entire supply chain end-to-end and is well positioned to grow across these three distinct yet interconnected networks.”